The big ticket FDI reform

In sweeping reforms to FDI norms, the Centre has opened up defence, civil aviation, single brand retail and pharma sectors to more investments.

An employee at a foreign currency exchange shop counts U.S. dollar notes in Bangalore, India, Thursday, Aug. 22, 2013. The Indian economy, Asia's third largest, grew 5 percent in the financial year ended March, its slowest in a decade and well off the 8 percent pace it had averaged over those 10 years. The Indian rupee has plumbed new lows against the dollar on a near daily basis, showing the pressure of a current account deficit that has swelled from high import costs. (AP Photo/Aijaz Rahi)

Touted as the biggest ever reform, the NDA government on Monday announced, what it termed, a >“radical liberalisation” of the Foreign Direct Investment (FDI) regime by easing norms for a host of important sectors including defence, civil aviation and pharmaceuticals, opening them up for complete foreign ownership.

Defence

Liberalised norms may nudge arms-makers to bite the bullet

The government's decision to liberalise conditions allowing 100 per cent FDI in the defence sector may result in at least some foreign entities setting up subsidiaries in India.

Earlier, FDI beyond 49 per cent was permitted through approval route in cases of access to modern and 'state-of-the-art' technology.

Under the new rule 49 per cent FDI in defence will be allowed under the automatic route, and beyond that government approval is mandatory.

Now, the government has done away with the 'state-of-the-art' technology clause. > Read more

Reliance Group, Tata Group, Mahindra Group and Bharat Forge have already signed MoUs with foreign firms to set up defence manufacturing facilities.

Food

Made-in-India food products more delectable

The new FDI rules is expected to give big push to the marketing of food products made in India. As the announcement extends to e-commerce, the likely beneficiaries are firms such as Bigbasket and Gofers — but one needs to wait for the final blueprint.

The only possible dampener is that the demand of industry to allow restricted retailing of essential commodities [like detergents], along with food products, does not seem to have been accepted. > Read more

Pharma sector

M&As to be an active ingredient in pharma

With 100 per cent FDI allowed in pharma, mergers and acquisitions (M&A) by multinational companies are likely to intensify in the sector, attracting a sizeable amount of funds.

It has been decided to permit up to 74 per cent FDI under automatic route in brownfield projects and approval route beyond that. > Read more

Single-brand retail

Three-year respite for Apple

For players like Apple and the Chinese electronics manufacturer LeEco, the new FDI norms for single-brand retail are a mixed bag.

Local sourcing norms have been eased in Single brand retail for three years and a relaxed sourcing regime have been introduced for five years.

After a three year blanket exemption, the local sourcing norm will, however, kick in for companies producing goods with “cutting-edge and state-ofthe-art technology”.

Companies such as Apple and LeEco which had sought a waiver from the 30 per cent mandatory local sourcing norm, will now have to take a call on whether they want to seek a waiver under the new norms and re-apply. > Read more

Aviation

Foreign investors can have the cockpit to themselves

Opening up foreign investments in the civil aviation sector, the Union government allowed overseas entrepreneurs, other than airlines, to bring in up to 100 per cent FDI to set up an airline in India. However, foreign airlines will be permitted to invest only up to 49 per cent in an airline.

To give a fillip to airport modernisation, 100 per cent FDI will be allowed for existing airports under the automatic route.

Foreign airlines, at present, own stake in Jet Airways, Vistara and AirAsia India. In 2013, Jet Airways sold a 24 per cent stake to Etihad Airways. Vistara is a joint venture between Tata Sons (51 per cent) and Singapore Airlines (49 per cent). AirAsia Bhd owns a 49 per cent stake in AirAsia India and Tata Sons 51 per cent. > Read more

Prohibited list

FDI continues to be prohibited in lottery, gambling, atomic energy, real estate investment trusts (ReIT), and railway operations.

Twenty-five years of changes in FDI policy: highlights

July​: New industrial policy of Narasimha Rao government as part of the Union Budget presented by Manmohan Singh, which led to a substantive opening up of the Indian economy. 

August: FDI up to 51 per cent opened up in 47 high-priority sectors, including software (with 34 sectors under automatic route), with a condition that capital goods imports be financed by foreign equity. Export trading firms, hotels and tourism businesses also allowed 51 per cent FDI. Foreign Investment Promotion Board (FIPB) set up in the PMO to vet FDI proposals, with a Finance Minister-headed panel deciding on investments taking a call on FDI over Rs 300 crore. 

April: FDI in software also put on automatic route. ​

May: Use of foreign brand names allowed.

June:  Dividend balancing norms for FDI-backed firms, linking dividend payments to export income, scrapped for all but consumer goods firms. 

October: FDI in Pharma up to 51 per cent put on automatic approval route, except for recombinant DNA technologies. 

FIPB transferred to Department of Industrial Policy and Promotion (DIPP); approvals up to Rs. 600 crore by Industry Minister, Cabinet Committee for nods over Rs. 600 crore.

November:  Condition linking import of capital goods to foreign equity investments scrapped. 

October:  49 per cent FDI allowed in mobile telephony by satellite.

January:  FDI in construction of highways, toll roads and ports raised from 74 per cent to 100 per cent.

March:  Timeline for considering FDI proposals slashed from six weeks to 30 days.

March :  Eases norms for 100 per cent FDI in NBFCs.

October:   26 per cent FDI in insurance sector.

May:  100 per cent FDI in drug manufacturing and pharma, airports, hotel, tourisms, 26 per cent FDI in defence, 74 per cent in select activities of telecom sector, 49 per cent FDI in banking sector. 

January:  100 per cent FDI in petroleum product marketing, oil exploration, petroleum production and natural gas pipelines.

March:  74 per cent FDI in private banks.

March:  100 per cent FDI in townships.

  74 per cent FDIin telecom, 20 per cent FDI in radio broadcasting.

February:  51 per cent FDI in single brand retail.

March:  74 per cent FDI in telecom.

March:  100 per cent FDIin airports, 74 per cent FDI in non-scheduled air transport services.

January:  100 per cent FDI in fax publication of foreign newspapers, 26 per cent FDI in publication of Indian versions of foreign publications. 

November:  100 per cent FDI in brownfield pharmaceutical projects (earlier only in greenfield).

January:  100 per cent FDI in single brand retail.

September:  52 per cent FDI in multi-brand retail. 49 per cent FDI in aviation companies, power exchanges. 74 per cent FDI in teleports, mobile TV. 

August:  49 per cent FDI in defence sector, 100 per cent FDI in some aspects of rail infrastructure.

March, April:  49 per cent FDI in insurance, pension sectors. 

June:  100 per cent FDI in trading including through e-commerce, amendments to FDI in defence sector policy, 100 per cent FDI in teleports, DTH, mobile TV, 100 per cent FDI in brownfield aviation projects, 74 per cent FDI in private security agencies, amendments to FDI in animal husbandry policy, relaxing norms in single brand retail. 

Compiled by Vikas Dhoot and TCA Sharad Raghavan

Published - June 21, 2016 12:37 pm IST